For most of yesterday gold bobbed around but closed virtually unchanged, unlike the HUI, which managed to lose nine points or 2.23% over the session.

Now when we look at the HUI’s chart we can see that it has backed off from a high of 420 to 401 in two days of trading.

We agree that two dots on a chart are not conclusive and maybe they are not even indicative of where the gold stocks index will go next. However we have been anticipating a pullback and regular readers will be aware that we have been tabling this possibility over the past few weeks. Gold stocks have had a terrific run no doubt about it, so a breather has been earned. We anticipate the HUI backing off still further by around 7% or so to around the 370 level which would put it close to the 50dma. In terms of timing we anticipate this happening over the next week or so. Yes this is sticking our necks on the line to call such a move when the euphoria runs high amongst gold bugs, including us. However it’s our money so we will call it as we see it.

We were up to our ears in gold mining stocks and decided to take some money off the table so we are now only up to our arm pits in gold stocks. The money on the sidelines is going nowhere. It will stay put until we can identify a re-entry point and buy stocks again. Being a gold bug and having cash at the moment is torture. We need to tell ourselves to stay calm and look for those quality gold miners that may get oversold if and when this correction occurs. If we are wrong then yes will have to buy back in at higher prices.

What we are discussing now is the very near term situation. It does not change our long-term view that gold is gaining strength and credibility as an investment on a daily basis. By the end of the year most of these gold stocks will look cheap. Hold on to what you have and be patient as the volatility increases. If you sell into a dip you could be giving ‘yours truly’ a bargain.

Enjoy today.

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